Netflix Prices Right?

I’ve been pretty harsh in the past with how poorly they handled pricing. This time I think they are absolutely spot on. Two things we should learn from what they are doing.

First, they are TESTING! They aren’t announcing a large price change without thorough testing. How often do we work ourselves up into a frenzy, believing we have the right answer, dive into the deep end and find out we made a mistake. Pricing, like most customer facing decisions, can and should be tested.

Second, they are testing a strategy of price segmentation based on how much value their customers receive. They are looking to create different packages and charge based on the number of users (or the number of screens). This means that a family of 4, each watching separate streamed shows on their own devices, would pay more than a single person watching his/her favorite shows. It makes sense that more users receive more value, so they would likely be willing to pay more. Not that they want to pay more, but they would be willing.

Some news agencies somehow got wind of this test and reported it. Netflix has not yet created messaging since they are just in the testing phase. This becomes extremely obvious when you read some of the comments readers of the article made. They think Netflix is simply trying to raise prices to take more money from their subscribers.

My advice to Netflix. When you announce the new “products” be sure to compare your new programs with Dish, DirectTV and the cable companies. They all charge an additional monthly fee based on the number of set top boxes users have. You can use this as a direct analogy. However, you will want to test this message as well before rolling it out.

Nobody likes their prices to be raised. Netflix needs to carefully position this price increase so as to not upset their customers. That said, everything I see so far says they are doing this one right.

What should you take away from this? First, test your price changes (and your messaging) whenever possible. It’s not always easy, but it’s much easier than trying to appease an entire upset customer base. Second, segment your pricing based on what your customers are willing to pay. We’ve said this a hundred times in this blog. Create new packages and offerings to segment your market and capture more of the value your customers receive. Yes, we’re being repetitive, but are you doing it yet?